Transgenic mice, expressing the dominant negative IGF-1 receptor (lysine to arginine substitution in the kinase domain) in skeletal muscle, developed severe insulin resistance in the muscle due to hybrid formation between the dominant negative IGF-1 receptor with the normal endogenous IGF-1 and insulin receptors. These mice, named MKR, soon developed insulin resistance in the liver and fat. Eventually they developed diabetes associated with abnormal insulin secretion from the pancreas. Hyperinsulinemic-euglycemic clamp studies confirmed the severe insulin resistance at the level of the liver, fat and muscle. Pancreatic perfusion studies showed hypersecretion of insulin from hyperplastic pancreatic islets with an abnormality in the first phase of insulin secretion following glucose stimulation. The progression of the disorder from insulin resistance to Type 2 diabetes was associated with elevated triglycerides (TG) in the serum, as well as elevated TG in the muscle and liver. Treatment of these animals with a fibrate for 4 weeks markedly reduced the circulating and tissue TG levels . The improvement in the lipotoxicity caused an improvement in the hyperglycemia, hyperinsulinemia and the insulin secretory pattern from the pancreas. Hyperinsulinemic-euglycemic clamp studies confirmed the marked improvement in liver responsiveness to insulin, with a marked reduction in hepatic glucose production, increased insulin responsiveness in adipocytes and improved whole-body glucose disposal. These and on-going studies are revealing the underlying molecular and cellular aspects of the generation of type 2 diabetes from the prediabetic (metabolic syndrome) state in a mouse model. Treatment of the MKR mouse model with a fibrate, leptin and a beta3 adrenergic receptor agonist all improved the diabetic state and reduced the insulin resistance especially in the liver. Thiazolidinediones and phloridzin failed to have the same effects. These findings suggest that lipotoxicity and not glucotoxicity is the main underlying pathophysiological factor.